Who Will Regulate the Regulators?

My recent investigation into insurance commissioners failure’ to consider, let alone prepare for, a new presidential administration withdrawing unconstitutional cost-sharing reduction payments when examining rates for the 2017 plan year included one particular story worth highlighting.

In Montana, the insurance commissioner branded Blue Cross Blue Shield’s premium increase as “unreasonable,” in part because it wished to prepare for an eventuality—namely, withdrawal of the cost-sharing reduction payments—that the commissioner herself ignored.

Insurer’s Request for Contingencies

As noted last month, Blue Cross Blue Shield of Montana first requested that state regulators permit it to stop reducing cost-sharing to low-income beneficiaries if the federal government withdrew the payments reimbursing insurers for those discounts. However, federal regulators rightly noted that Obamacare requires insurers to lower cost-sharing for qualified individuals, regardless of whether the federal government provides reimbursement for this, making this proposal impossible to implement.

Because it could not stop lowering cost-sharing if the federal reimbursements ceased, Blue Cross Blue Shield requested a higher premium increase for 2017, to cushion against the risk of an unfunded mandate—the federal government requiring the company to lower cost-sharing without reimbursing it for that. However, Montana’s insurance commissioner, Monica Lindeen, dubbed the carrier’s proposed premium increase “unreasonable.”

In a letter of deficiency posted on the commission’s website, Lindeen found several portions of the premium increase proposed by Health Care Services Corporation (Blue Cross Blue Shield of Montana’s parent company) unreasonable, including the portion linked to uncertainty over the cost-sharing reduction payments:

HCSC has added 4.2% to its rates because it believes that the government will lose a lawsuit that concerns the validity of the appropriation for cost-sharing reductions and that CMS [the federal Centers for Medicare and Medicaid Services] will not reimburse QHP [qualified health plan] issuers for cost sharing reductions in 2017. The lawsuit is currently pending appeal in the federal circuit court. Experts, including industry experts, agree that this case will not be resolved until at least 2018 and no one knows what the final outcome will be. HCSC appears to be the only health insurer in the country taking the position that its rates will be negatively impacted by this lawsuit in 2017….

In the years since CSI [the Commissioner of Securities and Insurance] has been reviewing health insurance rates, the CSI has always maintained the position that insurers may not base rating assumptions on speculation concerning the outcome of pending litigation. HCSC has stated that it will remove this rating assumption if the CSI allows HCSC to include illegal language in its policy. As the insurance regulator for this state, I cannot agree to that proposal. Raising 2017 rates on the basis of this assumption is unreasonable.

‘Unreasonable’ Regulators

The federal government withdrew the payments in October. Had the carrier not raised premiums pre-emptively to account for the possibility that the payments might disappear, it would have joined other insurers in incurring as much as $1.75 billion in losses over the final quarter of this calendar year.

Lindeen’s actions proved “unreasonable” in several respects. First, contra her claims that “experts agree” that the dispute over the payments “will not be resolved until at least 2018,” I specifically wrote in May 2016 that the incoming presidential administration could halt the payments “almost immediately.” The letter of deficiency does not even attempt to address this set of circumstances—the events that actually transpired—raising the obvious question of which “experts” Lindeen consulted, or whether indeed she consulted any “experts” at all.

Why It Matters

Liberals have worked to publicly embarrass insurance companies for years. The Obama administration stoked outrage over Anthem’s proposed 39 percent premium increase in California in early 2010 to marshal support for Obamacare’s passage, after Scott Brown’s special election Senate win made its prospects seem bleak.

The Left wants to make such “naming and shaming” de rigueur. California recently enacted a drug transparency law requiring pharmaceutical companies to justify price increases, a measure other states wish to emulate. But perhaps not surprisingly, liberals have yet to explain exactly what should happen when regulators get it wrong, as so clearly happened in Montana, where Lindeen arrived at a conclusion ultimately disproven by events.

At minimum, the Trump administration has a role to play in regulating the regulators, as the Department of Health and Human Services (HHS) must certify each state has an “effective” rate review program. Federal authorities should ask Montana’s insurance commissioner why she considered Blue Cross’ assumptions regarding cost-sharing reduction payments “unreasonable” when Blue Cross and not she ended up being correct. Moreover, given the larger regulatory debacle over cost-sharing payments, HHS has reason to write to every state and ask why they all made the mistaken assumption that unconstitutional payments to insurers would continue.

While this conservative would much prefer states regulating insurance markets rather than the federal government, the incompetence on display over cost-sharing reductions demonstrates the need for increased accountability among state authorities. If liberals wish to persist in their efforts to “hold industry accountable” for raising prices, perhaps they should explain how they will hold regulators accountable when those regulators drop the proverbial ball. Better yet, they should stop trying to scapegoat insurance companies for higher health costs, and work instead towards reducing them.

This post was originally published at The Federalist.

What You Need to Know about Cost-Sharing Reductions

A PDF version of this document is available via the Texas Public Policy Foundation.

On October 12, the Trump Administration announced it would immediately terminate a series of cost-sharing reduction payments to insurers. Meanwhile policy-makers have spent time debating and discussing cost-sharing payments in the context of a “stabilization” bill for the Obamacare Exchanges. Here’s what you need to know about the issue ahead of this year’s open enrollment period, scheduled to begin on November 1.

What are cost-sharing reductions?

Cost-sharing reductions, authorized by Section 1402 of Obamacare, provide individuals with reduced co-payments, deductibles, and out-of-pocket maximum expenses.[1] The reductions apply to households who purchase Exchange coverage and have family income of between 100% and 250% of the federal poverty level (FPL, $24,600 for a family of four in 2017). The system of cost-sharing reductions remains separate from the subsidies used to discount monthly insurance premiums, authorized by Section 1401 of Obamacare.[2]

What are cost-sharing reduction payments?

The payments (also referred to as CSRs) reimburse insurers for the cost of providing the discounted policies to low-income individuals. According to the January Congressional Budget Office (CBO) baseline, those payments will total $7 billion in the fiscal year that ended on September 30, $10 billion in the fiscal year ending this coming September 30, and $135 billion during fiscal years 2018-2027.[3]

What is the rationale for CSR payments?

Insurers argue that CSR payments reimburse them for discounts that the Obamacare statute requires them to provide to consumers. However, some conservatives would argue that the cost-sharing reduction regime might not be necessary but for the myriad new regulations imposed by Obamacare. These regulations have more than doubled insurance premiums from 2013 through 2017, squeezing middle-class families.[4] Some conservatives would therefore question providing government-funded subsidies to insurers partially to offset the cost of government-imposed mandates on insurers and individuals alike.

Why are the CSR payments in dispute?

While Section 1402 of Obamacare authorized reimbursement payments to insurers for their cost-sharing reduction costs, the text of the law did not include an explicit appropriation for them. Some conservatives have argued that the Obama Administration’s willingness to make the payments, despite the lack of an explicit appropriation, violated Congress’ constitutional “power of the purse.” In deciding to terminate the CSR payments, the Trump Administration agreed with this rationale.

What previously transpired in the court case over CSR payments?

In November 2014, the House of Representatives filed suit in federal court over the CSR payments, claiming the Obama Administration violated both existing law and the Constitution, and seeking an injunction blocking the Administration from making the payments unless and until Congress grants an explicit appropriation.[5] In September 2015, Judge Rosemary Collyer of the United States District Court for the District of Columbia ruled that the House of Representatives had standing to sue, rejecting a Justice Department attempt to have the case dismissed. Judge Collyer ruled that the House as an institution had the right to redress for a potential violation of its constitutional “power of the purse.”[6]

On May 12, 2016, Judge Collyer issued her ruling on the case’s merits, concluding that no valid appropriation for the CSR payments exists, and that the Obama Administration had violated the Constitution by making payments to insurers. She ordered the payments halted unless and until Congress passed a specific appropriation—but stayed that ruling pending an appeal.[7]

How did the Obama Administration justify making the CSR payments?

In its court filings in the lawsuit, the Obama Administration argued that the structure of Obamacare implied an appropriation for CSR payments through the Treasury appropriation for premium subsidy payments—an appropriation clearly made in the law and not in dispute.[8] President Obama’s Justice Department made this argument despite the fact that CSR and premium subsidy regimes occur in separate sections of the law (Sections 1402 and 1401 of Obamacare, respectively), amend different underlying statutes (the Public Health Service Act and the Internal Revenue Code), and fall within the jurisdiction of two separate Cabinet Departments (Health and Human Services and Treasury).

The Obama Administration also argued, in court and before Congress, that it could make an appropriation because Congress had not prohibited the Administration from doing so—effectively turning the Constitution on its head, by saying the executive can spend funds however it likes unless and until Congress prohibits it from doing so.[9] In her ruling, Judge Collyer rejected those and other arguments advanced by the Obama Justice Department.

Did Congress investigate the history, legality, and constitutionality of the Obama Administration’s CSR payments to insurers?

Yes. Last year, the Ways and Means and Energy and Commerce Committees organized and released a 158-page report on the CSR payments.[10] While congressional investigators received some documents relating to the Obama Administration’s defense of the CSR payments, the report described an overall pattern of secrecy surrounding critical details—portions of documents, attendees at meetings, etc.—of the CSR issue. For instance, the Obama Administration did not fully comply with valid subpoenae issued by the committees, and attempted to prohibit Treasury appointees who volunteered to testify before committee staff from doing so. However, despite the extensive oversight work put in by two congressional committees, and the pattern of secrecy observed, neither of the committees have taken action to compel compliance, or redress the Obama Administration’s obstruction of Congress’ legitimate oversight work.

What has the Trump Administration done about the CSR payment lawsuit?

After the election, the Justice Department and the House of Representatives filed a motion with the United States Circuit Court of Appeals for the District of Columbia.[11] The parties stated that they were in negotiations to settle the lawsuit, and sought to postpone proceedings in the appeal (which the Obama Administration had filed last year). The Justice Department and the House have filed several extensions of that request with the court, but have yet to present a settlement agreement, or provide any substantive updates surrounding the issues in dispute. In announcing its decision to terminate the CSR payments, the Trump Administration said it would provide the court with a further update on October 30.

In August, the Court of Appeals granted a motion by several Democratic state attorneys general seeking to intervene in the suit (originally called House v. Burwell, and renamed House v. Price when Dr. Tom Price became Secretary of Health and Human Services).[12] The attorneys general claimed that the President’s frequent threats to settle the case, and cut off CSR payments, meant their states’ interests would not be represented during the litigation, and sought to intervene to prevent the House and the Trump Administration from settling the case amongst themselves—which could leave an injunction permanently in place blocking future CSR payments.

Upon what basis did President Trump stop the CSR payments to insurers?

Under existing law, court precedent, and constitutional principles, a determination by the executive about whether or not to make the CSR payments (or any other payment) depends solely upon whether or not a valid appropriation exists:

  • If a valid appropriation does not exist, the executive cannot disburse funds. The Anti-Deficiency Act prescribes criminal penalties, including imprisonment, for any executive branch employee who spends funds not appropriated by Congress, consistent with Article I, Section 9, Clause 7 of the Constitution: “No money shall be drawn from the Treasury but in Consequence of Appropriations made by Law.”[13]
  • If a valid appropriation exists, the executive cannot withhold funds. The Supreme Court held unanimously in Train v. City of New York that the executive cannot unilaterally impound (i.e., refuse to spend) funds appropriated by Congress, which would violate a President’s constitutional duty to “take Care that the Laws be faithfully executed.”[14]

Has a court forced President Trump to keep making the CSR payments?

No. In fact, until the Administration had announced its decision late Thursday, no one—from insurers to insurance commissioners to governors to Democratic attorneys general to liberal activists and Obamacare advocates—had filed suit seeking to force the Trump Administration to make the payments. (While the Democratic attorneys general sought, and received, permission to intervene in the House’s lawsuit, that case features the separate question of whether or not the House had standing to bring its matter to court in the first place. It is possible that appellate courts could, unlike Judge Collyer, dismiss the House’s case on standing grounds without proceeding to the merits of whether or not a valid appropriation exists.)

Given the crystal-clear nature of existing Supreme Court case law—if a valid appropriation exists, an Administration must make the payments—some would view the prolonged unwillingness by Obamacare supporters to enforce this case law in court as tacit evidence that a valid appropriation does not exist, and that the Obama Administration exceeded its constitutional authority in starting the flow of payments.

How will the decision to stop CSR payments affect individuals in Exchange plans?

In the short- to medium-term, it will not. Insurers must provide the cost-sharing reductions to individuals in qualified Exchange plans, regardless of whether or not they get reimbursed for them.

Can insurers drop out of the Exchanges immediately due to the lack of CSR payments?

No—at least not in most cases in 2017. The contract between the federal government and insurers on the federal Exchange for 2017 notes that insurers developed their products based on the assumption that cost-sharing reductions “will be available to qualifying enrollees,” and can withdraw from the Exchanges if they are not.[15] However, under the statute, enrollees will always qualify for the cost-sharing reductions—that is not in dispute. The House v. Burwell case instead involves whether or not insurers will receive federal reimbursements for providing the cost-sharing reductions to enrollees. This clause may therefore have limited applicability to withdrawal of CSR payments. It appears insurers have little ability to withdraw from Exchanges in 2017, even if the Trump Administration stops reimbursing insurers.

If insurers faced a potential unfunded obligation—providing cost-sharing reductions without federal reimbursement—to the tune of billions of dollars, how did they react to Judge Collyer’s ruling last year?

Based on their public filings and statements, several did not appear to react at all. While Aetna and Centene referenced loss of CSR payments as impacting their firms’ outlooks and risk profiles in their first Securities and Exchange Commission (SEC) quarterly filings after Judge Collyer’s ruling, most other companies ignored the potential impact until earlier this year.[16] Some carriers have given decidedly mixed messages on the issue—for instance, as Anthem CEO Joseph Swedish claimed on his company’s April 26 earnings call that lack of CSR payments would cause Anthem to seek significant price hikes and/or drop out of state Exchanges,[17] his company’s quarterly SEC filing that same day indicated no change in material risks, and no reference to the potential disappearance of CSR payments.[18]

Even before Judge Collyer’s ruling in May 2016, one could have easily envisioned a scenario whereby a new President in January 2017 stopped defending the CSR lawsuit, and immediately halted the federal CSR payments: “Come January 2017, the policy landscape for insurers could look far different” than in mid-2016.[19] However, despite public warnings to said effect—and the apparent lack of public statements by either Donald Trump or Hillary Clinton to continue the CSR payments should they win the presidency—insurers apparently assumed maintenance of the status quo, disregarding these potential risks when bidding to offer Exchange coverage in 2017.

Did insurance regulators fail to anticipate or plan for changes to CSR payments following Judge Collyer’s ruling?

It appears that many did. For instance, the office of California’s state insurance commissioner reported having no documents—not even a single e-mail—analyzing the impact of Judge Collyer’s May 2016 ruling on insurers’ bids for the 2017 plan year.[20] Likewise, California’s health insurance Exchange disclosed only two relevant documents: A brief e-mail sent months after the state finalized plan rates for the 2017 year, and a more detailed legal analysis of the issues surrounding CSR payments—but one not undertaken until mid-November, after Donald Trump won the presidential election.[21]

Some conservatives may be concerned that insurance commissioners’ failure to examine the CSR payment issue in detail—when coupled with insurers’ similar actions—represents the same failed thinking that caused the financial crisis. That herd behavior—an insurer business model founded upon a new Administration continuing unconstitutional actions, and regulators blindly echoing insurers’ assumptions—represents the same “too big to fail” mentality that brought us a subprime mortgage scandal, a massive financial crash on Wall Street, a period of prolonged economic stagnation, and a taxpayer-funded bailout of big banks.

How can Congress restore its Article I power?

With respect to the CSR payments, conservatives looking to restore its Article I power—as Speaker Ryan recently claimed he wanted to do by maintaining the debt limit as the prerogative of Congress—could take several appropriate actions:[22]

  • Insist on a settlement of the lawsuit in the House’s favor, consistent with the last Congress’ belief that 1) Obamacare lacks a valid appropriation for CSR payments and 2) decisions regarding appropriations always rest with Congress, and not the executive;
  • Ask the Justice Department to investigate whether any Obama Administration officials violated the Anti-Deficiency Act by making CSR payments without a valid congressional appropriation; and
  • Insist on enforcement of the subpoenae issued by the House Ways and Means and Energy and Commerce Committees during the last Congress, and pursue contempt of Congress charges against any individuals who fail to comply.

How can Congress exercise its oversight power regarding the CSR payments?

Before even debating whether or not to create a valid appropriation for the CSR payments, Congress should first examine in great detail whether and why insurers and insurance commissioners ignored the issue in 2016 (and prior years); any potential changes to remedy an apparent lack of oversight by insurance commissioners; and appropriate accountability for any unconstitutional and illegal actions as outlined above.

Some conservatives may be concerned that, by blindly making a CSR appropriation without conducting this critically important oversight, Congress would make a clear statement that Obamacare is “too big to fail.” Such a scenario—in addition to creating a de facto single-payer health care system—would, by establishing a government backstop for insurers’ risky behaviors, bring about additional, and potentially even larger, bailouts in the future.

What are the implications of providing CSR payments to insurers?

Given the way in which many insurers and insurance regulators blindly assumed cost-sharing reduction payments would continue, despite the lack of an express appropriation in the law, some conservatives may be concerned that making CSR payments would exacerbate moral hazard. Specifically, when filing their rates for the 2017 plan year, insurers appear to have assumed they would receive over $7 billion in CSR payments—despite the uncertainty surrounding 1) the lack of a clear CSR appropriation in the statute; 2) the May 2016 court ruling calling the payments unconstitutional; 3) the unknown outcome of the 2016 presidential election; and 4) the apparent lack of a firm public commitment by either major candidate in the 2016 election to continue the CSR payments upon taking office in January 2017.

Some conservatives may therefore oppose rewarding this type of reckless behavior by granting them the explicit taxpayer subsidies they seek, for fear that it would only encourage additional irresponsible risk-taking by insurance companies—and raise the likelihood of an even larger taxpayer-funded bailout in the future.

How can Congress solve the larger issue of CSRs creating an unfunded mandate on insurance companies absent an explicit appropriation?

One possible way would involve elimination of Obamacare’s myriad insurance regulations, which have led to insurance premiums more than doubling in the individual market over the past four years.[23] Repealing these new and costly regulations would lower insurance premiums, reducing the need for cost-sharing reductions, and allowing Congress to consider whether to eliminate the CSR regime altogether.


[1] 42 U.S.C. 18071, as created by Section 1402 of the Patient Protection and Affordable Care Act, P.L. 111-148.
[2] 26 U.S.C. 36B, as created by Section 1401 of PPACA.
[3] Congressional Budget Office, January 2017 baseline for coverage provisions of the Patient Protection and Affordable Care Act, https://www.cbo.gov/sites/default/files/recurringdata/51298-2017-01-healthinsurance.pdf, Table 2.
[4] Department of Health and Human Services Office of Planning and Evaluation, “Individual Market Premium Changes: 2013-2017,” ASPE Data Point May 23, 2017, https://aspe.hhs.gov/system/files/pdf/256751/IndividualMarketPremiumChanges.pdf.
[5] The House’s original complaint, filed November 21, 2014, can be found at https://jonathanturley.files.wordpress.com/2014/11/house-v-burwell-d-d-c-complaint-filed.pdf.
[6] Judge Collyer’s ruling on motions to dismiss, dated September 9, 2015, can be found at https://docs.justia.com/cases/federal/district-courts/district-of-columbia/dcdce/1:2014cv01967/169149/41.
[8] Links to the filings at the District Court level can be found at https://dockets.justia.com/docket/district-of-columbia/dcdce/1:2014cv01967/169149.
[9] Testimony of Mark Mazur, Assistant Secretary for Tax Policy, before the House Ways and Means Oversight Subcommittee hearing on “Cost Sharing Reduction Investigation and the Executive Branch’s Constitutional Violations,” July 7, 2016, https://waysandmeans.house.gov/event/hearing-cost-sharing-reduction-investigation-executive-branchs-constitutional-violations/.
[10] House Energy and Commerce and House Ways and Means Committees, “Joint Congressional Investigative Report into the Source of Funding for the ACA’s Cost Sharing Reduction Program,” July 7, 2016, https://waysandmeans.house.gov/wp-content/uploads/2016/07/20160707Joint_Congressional_Investigative_Report-2.pdf
[13] The statutory prohibition on executive branch employees occurs at 31 U.S.C. 1341(a)(1); 31 U.S.C. 1350 provides that any employee knowingly and willfully violating such provision “shall be fined not more than $5,000, imprisoned for not more than two years, or both.”
[14] Train v. City of New York, 420 U.S. 35 (1975).
[15] Qualified Health Plan Agreement between issuers and the Centers for Medicare and Medicaid Services for 2017 plan year, https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Plan-Year-2017-QHP-Issuer-Agreement.pdf, V.b, “Termination,” p. 6.
[16] Aetna Inc., Form 10-Q Securities and Exchange Commission filing for the second quarter of calendar year 2016, http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1hSFIwY0RvdkwyRndhUzUwWlc1cmQybDZZWEprTG1OdmJTOWtiM2R1Ykc5aFpDNXdhSEEvWVdOMGFXOXVQVkJFUmlacGNHRm5aVDB4TVRBMk5qa3hOQ1p6ZFdKemFXUTlOVGM9JnR5cGU9MiZmbj1BZXRuYUluYy5wZGY=
p. 44; Centene, Inc., Form 10-Q Securities and Exchange Commission filing for the second quarter of calendar year 2016, https://centene.gcs-web.com/static-files/23fd1935-32de-47a8-bc03-cbc2c4d59ea6, p. 42.
[17] Transcript of Anthem, Inc. quarterly earnings call for the first quarter of calendar year 2017, April 26, 2017, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjY3NTM5fENoaWxkSUQ9Mzc1Mzg1fFR5cGU9MQ==&t=1, p. 5.
[19] Chris Jacobs, “What if the Next President Cuts Off Obamacare Subsidies to Insurers?” Wall Street Journal May 5, 2016, https://blogs.wsj.com/washwire/2016/05/05/what-if-the-next-president-cuts-off-obamacare-subsidies/.
[20] Chris Jacobs, “Don’t Blame Trump When Obamacare Rates Jump,” Wall Street Journal June 16, 2017, https://www.wsj.com/articles/dont-blame-trump-when-obamacare-rates-jump-1497571813.
[21] Covered California response to Public Records Act request, August 25, 2017.
[22] Burgess Everett and Josh Dawsey, “Trump Suggested Scrapping Future Debt Ceiling Votes to Congressional Leaders,” Politico September 7, 2017, http://www.politico.com/story/2017/09/07/trump-end-debt-ceiling-votes-242429.
[23] HHS, “Individual Market Premium Changes: 2013-2017.”

Insurers’ Obamacare Extortion Racket

The coming weeks will see U.S. health insurance companies attempt to preserve what amounts to an extortion racket. Already, some carriers have claimed they will either exit the Obamacare exchanges entirely in 2018, or submit dramatically higher premium increases for next year, if Congress does not fund payments to insurers for cost-sharing reductions. While insurers claim “uncertainty” compels them to make these business changes, in reality their roots are the companies’ gross incompetence and crass politics.

While Obamacare requires insurers to lower certain low-income individuals’ deductibles and co-payments, and directs the executive agencies to reimburse insurers for those cost-sharing reductions, it nowhere gives the administration an explicit appropriation to do so. The Obama administration made payments to insurers without an explicit appropriation from Congress, and was slapped with a federal lawsuit by the House of Representatives for it.

Either the Companies Are Mismanaged Or Playing Politics

For insurers to assume that the cost-sharing reduction payments would continue through 2017, let alone 2018, required them to ignore 1) public warnings in articles like mine; 2) Collyer’s ruling; 3) the fact that President Obama would leave office on January 20, 2017; and 4) the apparent silence from both Hillary Clinton and Donald Trump during last year’s campaign on whether they would continue the cost-sharing reduction payments once in office.

Given those four factors, competent insurance executives would have built in an appropriate contingency margin into their 2017 exchange bids, recognizing the uncertainty that the cost-sharing reduction payments would continue during the new administration. Instead, some insurers largely ignored the issue. In its most recent 10-K annual report with the Securities and Exchange Commission, filed February 22, Anthem made not a single reference in the 520-page document to the cost-sharing reduction payments or the House lawsuit.

Therein lies the reason for insurers’ threats. All last year, several insurers assumed Clinton would win and continue the (unconstitutional) payments. Worse yet, some may have willfully ignored their fiduciary responsibility to create a contingency margin for their 2017 plan bids because they wanted to help Clinton by keeping premiums artificially low.

How the People’s Representatives Should Respond

Responding to this extortion racket requires several layers of accountability. First, insurers must accept responsibility for their persistent refusal to address the cost-sharing reduction issue sooner. The Securities and Exchange Commission should investigate whether publicly traded insurers failed to disclose material risks in their company filings by neglecting to mention the clearly foreseeable uncertainty surrounding the payments.

Likewise, the Justice Department’s antitrust division should examine whether insurers’ 2017 premium submissions represent an instance of illegal collusion. If the insurance industry collectively neglected to include a contingency margin surrounding the cost-sharing payments—either to keep premium increases low before the election, or to strong-arm the incoming administration to continue to fund them—such a decision might warrant federal sanctions.

Finally, conservatives and the Trump administration should shine a bright light on state insurance commissioners’ review of premium submissions. Commissioners who approve large contingency margins for 2018 due to uncertainty over cost-sharing reductions, yet did not require a similar contingency margin for 2017 premiums, can be reasonably accused of gross incompetence, playing politics with health insurance premiums, or both.

This post was originally published at The Federalist.

An Obamacare Lesson for Small Health Insurers?

In 2011, analysts were speculating that Assurant Health might exit the insurance business, the Milwaukee Journal Sentinel reported last week. So the recent news that Assurant’s parent company was looking to “sell or shut down” the insurance carrier by year’s end was not a total surprise. The issue now is whether its demise holds larger lessons about Obamacare’s impact on insurance markets.

One analyst called Assurant, which reported operating losses of nearly $64 million in fiscal 2014 and $84 million in the first quarter of fiscal 2015, a “casualty” of the law. The Affordable Care Act “required health plans to cover a package of basic benefits and required health insurers to spend at least 80 cents of every premium dollar on medical care or quality initiatives,” the Journal-Sentinel reported. Simply put, the law made health insurance more like a regulated utility—with plan designs, benefits, and overhead costs strictly regulated.

Obamacare supporters generally argue that these regulatory changes eliminate the potential for customer confusion or the sale of “substandard” insurance products. But further Journal-Sentinel reporting underscores a complication of that approach:

Finding a buyer for Assurant Health could be difficult. Unlike companies such as UnitedHealthcare or Anthem, which focus on larger employers, Assurant Health does not have the size in any one market to negotiate contracts directly with hospitals and doctors. It instead typically pays a monthly fee to other insurers to access their networks, potentially increasing its costs.

By standardizing insurance offerings—reducing or eliminating carriers’ ability to create niche markets through innovative product designs—Obamacare heightened the focus on insurers’ provider networks. Those companies that have the market clout to demand lower reimbursements from doctors and hospitals can moderate premium increases—winning more market share in the process. But smaller insurers that don’t have that clout may find themselves squeezed—and other carriers could face a similar fate to Assurant Health.

Obamacare standardizes offerings in the name of increasing competition, but doing so could end up reducing competition by creating an environment in which large insurers compete with large hospital and doctor networks in a battle of health-care oligopolies. Supporters of the law have worried about this for years—and Assurant’s impending closure appears to give more reason to do so.

This post was originally published at the Wall Street Journal Think Tank blog.

Obamacare Shocker: Premiums Could Double

This morning’s Wall Street Journal published its own analysis of premiums under Obamacare, and its conclusions will prompt shock—rate shock—among those who need to buy health insurance under the law’s new exchanges next year:

Healthy consumers could see insurance rates double or even triple when they look for individual coverage under the federal health law later this year, while the premiums paid by sicker people are set to become more affordable, according to a Wall Street Journal analysis of coverage to be sold on the law’s new exchanges. The exchanges, the centerpiece of President Barack Obama’s health-care law, look likely to offer few if any of the cut-rate policies that healthy people can now buy, according to the Journal’s analysis.

The article goes on to provide specific examples of the kind of premium hikes many Americans may face under Obamacare:

Virginia is one of the eight states examined by the Journal and offers a fairly typical picture. In Richmond, a 40-year-old male nonsmoker logging on to the eHealthInsurance comparison-shopping website today would see a plan that costs $63 a month from Anthem, a unit of WellPoint Inc. That plan has a $5,000 deductible and covers half of medical costs.

By comparison, the least-expensive plan on the exchange for a 40-year-old nonsmoker in Richmond, also from Anthem, will likely cost $193 a month, according to filings submitted by carriers.

Liberals may argue that even though premiums may triple for some Americans, these individuals will be getting “better” insurance. But that’s not what then-Senator Obama promised—he said premiums would go down under his plan by $2,500 per family per year. Moreover, the Congressional Budget Office noted in 2009, well before the law passed, that premiums would go up in part because Obamacare forces individuals to buy more costly health insurance policies:

Average premiums would be 27 percent to 30 percent higher because a greater amount of coverage would be obtained. In particular, the average insurance policy in this market [i.e., on exchanges] would cover a substantially larger share of enrollees’ costs for health care (on average) and a slightly wider range of benefits. Those expansions would reflect both the minimum level of coverage (and related requirements) specified in the proposal and people’s decisions to purchase more extensive coverage in response to the structure of subsidies.

Liberals’ response to the latest analysis of higher premiums is particularly telling. From the WSJ:

Tom Perriello, who voted for the law as a Democratic House member from Virginia and who now works for the left-leaning Center for American Progress, called the costs of premiums “a work in progress” and added, “Over the next few years, we should see that cost curve bend.”

In other words, premiums won’t go down any time soon. That admission from a lawmaker who helped ram Obamacare into law will likely prove cold comfort to millions of Americans facing higher premiums due to the measure next year.

This post was originally published at The Daily Signal.

Obamacare’s Bait and Switch

The article in yesterday’s New York Times regarding the Obama Administration’s “evolution” on the individual mandate contained several paragraphs trying to explain how and why President Obama grew to embrace a mandate that candidate Obama opposed.  The piece claims that internal models within the Administration proved that without a mandate, any “reform” effort would cover many fewer individuals – and that these data prompted Obama to switch his position on the mandate.  (One related and worthwhile question very few have asked:  If 15-20 million individuals will obtain coverage only if they’re FORCED to by the federal government, is the uninsured problem really as large as Democrats claim?)

But that anecdote presents far from a complete – and some would argue inaccurate – picture.  After all, then-Senator Clinton made all the arguments for a mandate that candidate Obama rejected, and President Obama later accepted: namely, that you can’t cover all Americans unless tens of millions of them are forced by the federal government to buy coverage: “Clinton’s camp often cites experts who say Obama’s plan would leave out 15 million people of the 47 million who are uninsured.”  So why did Obama REALLY change positions on the mandate?

A better context can be found in all of candidate Obama’s other commitments related to health care.  Among other pledges, Obama promised that:

  • You will not have to change plans.  For those who have insurance now, nothing will change under the Obama plan – except that you will pay less.”
  • “We’re going to work with you to lower your premiums by $2,500 per family per year.  And we will not wait 20 years from now to do it or 10 years from now to do it.  We will do it by the end of my first term as President.”
  • “I can make a firm pledge.  Under my plan, no family making less than $250,000 a year will see any form of tax increase.  Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.” 
  • “The Obama plan will cost $50-65 billion a year when fully phased in.” 
  • “Senator McCain would pay for his plan, in part, by taxing your health care benefits for the first time in history.  And this tax would come out of your paycheck.” 
  • We’ll have the negotiations televised, on C-SPAN, so that people can see who is making arguments on behalf of their constituents, and who are making arguments on behalf of the drug companies or the insurance companies.”

The American people were promised a health care plan that would be negotiated on C-SPAN, in which all Americans would be covered, premiums would go down by $2,500 a year even after covering all the newly insured, no one would have to give up their existing coverage, and only “the rich” would pay for all this new government munificence. (For some reason, the Obama campaign didn’t promise to buy everyone a pony for good measure.)  In other words, at every single opportunity during his campaign, Obama took the easy way out – he ducked the hard choices, and said implementing a universal health care plan would be an entirely pain-free exercise.  And whenever his opponents implied some hard choices might actually be required – when Sen. Clinton suggested a mandate would be necessary to achieve universal coverage, and when Sen. McCain proposed a new (and surprisingly progressive) tax policy change to cover more Americans – Obama mercilessly attacked them for each.

Of course, all of candidate Obama’s pledges and commitments cited above have since been violated, in fairly obvious fashion.  But even though campaign plans evolve over time as they’re implemented into legislative form, many of the Obama promises were viewed as unrealistic even during the campaign itself.  Few people at the time thought Obama could implement a truly universal health care plan (his stated goal) for his stated price tag of $50-65 billion.  But that didn’t stop the Obama campaign from trumpeting that cost estimate, or the $2,500 in premium savings few thought his campaign could achieve.  (News flash: They haven’t.)

Yesterday’s Los Angeles Times profiled a lawsuit against Anthem Blue Cross for alleged “bait and switch” tactics.  But given the list above, some may wonder what legal action the American people should take for the Obama Administration’s “bait and switch” on health care.

Seniors Find They CAN’T Keep Their Current Coverage

An article in the Marin Independent Journal today profiles a decision by Anthem Blue Cross to terminate its Medicare Advantage plan, resulting in more than 100,000 California seniors losing access to their current coverage:

Ng said Anthem Blue Cross decided to end its [Medicare] Advantage plan because otherwise, rising costs would have required it to either increase premiums or reduce benefits.

Wanda Jones, president of San Francisco’s New Century Healthcare Institute, said Anthem Blue Cross also may be reacting to changes in federal regulation of Advantage plans that are being implemented as part of health care reform.

“The feds have let these plans know that they intend to make them roll back their costs to match Medicare basic,” Jones said. “It’s Blue Cross wanting to cut its potential losses before they occur.”

Anthem’s decision will affect 113,000 Medicare beneficiaries statewide, and decisions by other health plans to drop their Advantage plans will force another 37,000 beneficiaries in California to switch plans, said Jack Cheevers, a Medicare spokesman.

The article also notes that “Anthem’s exit leaves Kaiser Permanente as the only private company offering an Advantage plan in Marin” County – meaning seniors there will NOT have a choice of plans.

Last week, Speaker Pelosi admitted that Democrats “took a half a trillion dollars out of Medicare” in Obamacare, to pay for costly new entitlements.  the article once again illustrates how taking that money out of Medicare has affected seniors – higher premiums, reduced benefits, dropped coverage, and less choice.

As a reminder, the Obama campaign platform promised that “you will not have to change plans.  For those who have insurance now, nothing will change under the Obama plan – except that you will pay less.”  Today’s development once again proves how that promise has fallen short for hundreds of thousands of seniors.

Obamacare and Premium Increases

The Administration is preparing to announce another round of rate review grants this morning, and will likely claim this new government spending shows Obamacare is lowering premiums.  However, the reality is that premiums keep going up – in many cases because of, not despite, the provisions in the law.  Just yesterday an article highlighted some of the premium increases in Connecticut:

  • “Many of [an insurance broker’s] clients are seeing average rate hikes for the fourth quarter 2011 and 2012 in the high single digits…”
  • Another insurance broker “said his small group clients are seeing average fourth quarter rate increases in the 9 to 15 percent range.”
  • A third broker for large employers said that “medical costs are still trending 11 to 12 percent higher.”
  • “Connecticare will be raising fourth quarter rates on average from 6.8 percent to 8.6 percent on its small group medical plans.”
  • “Anthem Blue Cross and Blue Shield has proposed an average annual rate increase of 5.5 percent…”
  • “Oxford Health Plans/United Healthcare had one of the higher requests, asking regulators for permission to raise its small group rates an average of 14.4 percent.”

Some may claim that these increases of “only” 5-15 percent – well above inflation – represent “successes,” because premium growth slowed in some cases.  But to the extent health care spending trends slowed, they have likely been due to the bad economy and individuals foregoing treatments – which is reflective of the “stimulus’” failure to create the jobs it promised.   Moreover, the President repeatedly promised during his campaign that he would “cut” premiums by an average of $2,500 per family – meaning premiums would go DOWN, not merely just “go up by less than projected.”

Separately, Politico reports this morning that “there’s some speculation…that HHS might not release” a rule regarding “essential health benefits” “until after the 2012 elections to avoid a political land mine.”  The rule in question is a huge one:  The “essential health benefits” definition will determine the health insurance coverage all Americans must buy under Obamacare’s constitutionally dubious individual mandate.  And the Congressional Budget Office previously found that the “essential health benefits” and related mandates in Obamacare will raise individual health insurance premiums by up to 30 percent.  Today’s report suggests HHS may punt on issuing these critical regulations – creating more uncertainty for states and businesses alike – in order to avoid showing the American people just how much Obamacare will raise premiums before President Obama faces re-election.

Last March, then-Speaker Pelosi famously said we had to pass the bill to find out what’s in it.  Given that today’s report suggests HHS will delay its ultimate verdict on how much Obamacare will raise premiums until after the election, some may wonder: If this Administration has to try and prevent American voters from finding out what’s in the law, how good can it be…?

Health Care Law’s Impact on Premiums

I wanted to pass along this article from today’s Hartford Courant about some of the premium increases being requested in Connecticut – many as a result of the health care reform law:

Anthem Blue Cross and Blue Shield in Connecticut, by far the largest insurer of Connecticut residents, said in a letter that it expects the federal health reform law to increase rates by as much as 22.9 percent for just a single provision — removing annual spending caps. The mandate to provide benefits to children regardless of pre-existing conditions will raise premiums by 4.8 percent, Anthem said in the letter. Mandated preventive care with no deductibles would raise rates by as much as 8.5 percent, Anthem said.

An Obama Administration was quoted in the article as saying that “outside groups have done estimates, including the Urban Institute and Mercer, and the credible estimates come in the 1 [percent] to 2 percent range.”  However, in reality Mercer’s survey of employers found that the mandates taking effect this year alone would raise premiums by more than 2 percent on average – and small groups would face even greater premium impacts.

The article also makes a particularly salient point with respect to premium impacts: “Among all the plans, some already deliver the provisions required by health reform, while others do not.”  In other words, some individuals choose affordable plans that provide the benefits they need without other benefits they do not want.  These plans, and these individuals, will be most impacted by premium increases under the law – and the impact in these cases may be much greater than the 1-2 percent the Administration projects.

On a related note, below is a graph we’ve prepared highlighting rhetoric versus reality on premiums.  The President promised during his campaign that his health care plan would “bring down premiums by $2,500 for the typical family.”  However, the annual Kaiser Foundation survey of employer-provided insurance found that average family premiums totaled $12,860 in 2008, $13,375 in 2009, and $13,770 in 2010.  In other words, while candidate Obama promised premiums would fall by $2,500 on average, premiums have risen by $1,090 during the Obama Administration.  That difference is manifest in the graph below.

Administration Criticizes Rising Premiums — But Will Their Bill Make Things Worse?

Various press stories today have reported on the letter which HHS Secretary Sebelius sent to Anthem Blue Cross asking the insurance carrier to justify its proposed rate hikes in California.  Keeping aside the larger issue of whether the Administration is continuing to use insurers as political scapegoats to justify its government takeover of health care, it’s worth examining the causes of these increases.  Specifically, this morning’s LA Times quotes an Anthem representative as saying the carrier’s “costs have been driven up in part because the weak economy has led many people in good health to forgo coverage, leaving those with greater medical needs in its pool of customers.”

The Senate bill the Administration has endorsed would likely make this bad situation worse.  Individuals could cancel their policies to save money—paying a tax of only $750 per year for doing so—knowing full well they could buy coverage when they needed to, as insurance companies would be required to accept all applicants and could not charge differing rates.  In fact, a Wall Street Journal editorial last July cited evidence that individuals in Massachusetts—the only state with an individual mandate—are doing just that; one of the Commonwealth’s carriers found data indicating that 40% of its new applicants kept their policies for under five months, and incurred about six times their expected expenses, suggesting the healthy only bought coverage after becoming sick (and promptly dropped it once their illness was treated).  As a result of this insurance “death spiral,” premiums will rise faster than they otherwise would, chasing off more healthy customers and leading to yet another spike in premiums.

Thus the perverse incentives included in the Senate bill raise a fundamental question: With the Administration criticizing Anthem’s “extraordinary [premium] increases,” why do Democrats persist in advancing policies that would only make the situation worse?